Planning to buy a bank owned home with a FHA loan? I recommend that you apply for the 203K loan. I am a realtor and have recently had two different clients use a traditional FHA loan. They were both planning to completely remodel the homes and so wanted to waive the inspections so they could close faster and be able to complete the work themselves, that way they would not have to pay labor expenses to a contractor. The FHA appraisers came out to appraise the homes. Both homes were in Hayward Ca., both were bank owned and there were two different appraisers. One appraiser said that since the buyer waived the termite, roof and home inspections, they would recommend to fund the loan and let the new owner complete any remodeling at their own expense. The other appraiser said that even though the buyer had signed an inspection waiver andcompleted an addendum stating that they were buying the home in as is condition, and waived all inspections including termite, roof and home inspections, the appraiser would not recommend funding until all inspections were completed and there was a roof and section one clearance. The seller (bank owned) said they would not allow any work to be completed by the buyer because of liability issues and the buyer did not want to pay a large sum of money for repairs on a home he/she did not own yet. The seller was concerned that if they put money into a home before close of escrow the buyer may walk away. A Catch 22! If we had gone with the 203K loan we could have done a hold back. The loan could fund and transaction close with escrow holding back from the seller the funds to complete the repairs.
Lesson learned!